"Other" Employee-Sponsored Retirement Plans

A comprehensive overview of all retirement plans—beyond your standard 401k

When we think of retirement planning, there are usually a few main accounts we associate with it. The majority of us are familiar with the popular 401(k), 403(b), and non-employer sponsored IRA and Roth plans. That’s not surprising when you take into account that more than 52% of U.S. retirement accounts are 401(k)s and IRA plans.

However, the world of employer-sponsored and retirement plans extends far beyond the 401(k) and 403(b).

So, let’s delve into the realm of "other" retirement plans, shedding light on lesser-known but equally viable alternatives. From SEP Retirement Plans and SIMPLE IRA Plans to Profit Sharing, Pensions, ESOPs, and more, we'll explore the intricacies of these unique retirement vehicles.

A Nod to the Mainstays

As a quick recap, let’s cover the essentials of the most common plans to set the tone.

More than half of Americans’ retirement contributions are in one of two plans — the 401(k) and the IRA. These plans come in two flavors, Roth or regular. A Roth 401(k) or Roth IRA will take post-tax contributions, and a lower contribution limit. Otherwise, your plan will accept pre-tax dollars that both grow your retirement and reduces your taxable income during that year.

Most retirement accounts eventually require you to take a “required minimum distribution” (RMD) once you reach a certain age. Keep that in mind when making your retirement plan.

Take your financial sitch and your age into account when deciding on your retirement plan. Acting first and thinking later is a blunder with long-term effects.

The SEP & Simple IRA

Let's start by unraveling the SEP Retirement Plan and the SIMPLE IRA Plan.

SEP Retirement Plan

The Simplified Employee Pension (SEP) plan is designed for self-employed individuals and small business owners. It allows employers to make tax-deductible contributions to individual retirement accounts (IRAs) on behalf of their employees, including themselves. SEP plans offer a simplified administrative process and flexible contribution limits, making them an attractive option for small businesses.

SIMPLE IRA Plan

The Savings Incentive Match Plan for Employees (SIMPLE) IRA plan is tailored for small businesses with fewer than 100 employees. It offers a straightforward and cost-effective way for employers to contribute to their employees’ retirement savings. Employees can make pre-tax contributions, and employers have the option to match employee contributions or make non-elective contributions. The SIMPLE IRA plan provides flexibility and ease of administration, making it an appealing choice for small businesses.

Profit Sharing, Pensions, ESOPs, and Pooled Employer Plans

Let's explore some other retirement plans that go beyond the conventional options.

Profit Sharing

Profit-sharing plans allow employers to share company profits with their employees by making contributions to their retirement accounts. These contributions are typically discretionary and can be based on a percentage of the company's profits or other predetermined factors. Profit-sharing plans offer employers flexibility in determining the contribution amounts, making them a valuable tool for incentivizing employees and rewarding their contributions to the company's success.

Pensions

Pensions, also known as defined benefit plans, provide employees with a predetermined retirement benefit based on factors such as years of service and salary history. Unlike 401(k)-style plans, the responsibility of funding and managing the pension plan lies with the employer. Pensions provide a reliable source of retirement income, ensuring that employees receive a fixed amount for the rest of their lives after retiring.

ESOP (Employee Stock Ownership Plan)

ESOPs are retirement plans that invest primarily in the employer's company stock. ESOPs can be used as a tool for business succession planning or as a way to align employee interests with company performance. As employees accumulate company stock within the ESOP, they become partial owners of the company, fostering a sense of ownership and potentially benefiting from the company's growth.

Cash Balance Plans and NQDCs

Cash Balance Plans

Cash balance plans combine features of traditional defined benefit plans and 401(k)-style plans. These plans guarantee employees a set benefit amount upon retirement, typically as a hypothetical account balance. The employer makes contributions to cash balance plans, which are based on a percentage of the employee's salary. Cash balance plans offer higher contribution limits than traditional 401(k) plans, making them attractive to high-income individuals and business owners.

Non-Qualified Deferred Compensation Plans (NQDCs)

NQDCs are employer-sponsored plans that allow highly compensated employees to defer a portion of their income to a future date, typically retirement. These plans are not subject to the same tax advantages as qualified retirement plans like 401(k)s or IRAs. However, they provide a way for highly compensated individuals to defer taxes on their income until a later date when they may be in a lower tax bracket.

Conclusion — bringing it all together

More than half of private sector workers have access to a retirement plan, so odds are you’ll find yourself in that group sooner or later. No matter what kind of account you find yourself with, there are a few tips that ring true regardless.

Open enrollment matters

When open enrollment comes around, don’t treat it like any other day. Take the time to do some math and compare it to your goals, reviewing your plan’s offerings carefully and deciding on a contribution with intentionality.

Calculate what you’ll need

Take the Pocketnest Retirement Calculator for a spin and find out just how much you’ll need to save for retirement to have the lifestyle you want.

Hold tight

Recessions, bear markets, volatility, and financial distress. The market will throw it all at you, but the key to a successful retirement account is to hold tight.

Don’t shy from help

Don’t be afraid to take advantage of expertise available to you. (Ahem, log onto Pocketnest and we’re here for you—at no charge! Remember to login weekly, update your to-do list, and keep a check on your goals.)